1. The price of the production goods still running on a high level in 2006. 

In 2006, the price of domestic production goods still run in a high position, which was in a situation of first rising and then reducing. From the tendency, the price rose month after month from January to June. The growing monthly link relative ratio of production goods in circulation was 0.1%, 0.8%, 1%, 2.1%, 2.9% and 1.3% respectively. In the second half year, the price tended to reduce generally except September. The growing monthly link relative ratio of production goods was -0.9%, -0.3%, -0.6%, -0.1%, -0.6% and -0.2% respectively. From the price level, the price of production goods compared with that of the same period of last year reduced for consequent seven months. After that, it rose instead reducing. And then it wandered up and down in a high position all the time. From January to December, the accumulated price of production goods in circulation increased by 3.5% compared with that of same period of last year. The growing breadth increased by 0.6 percentage points compared with that of last year. From the variety, the change in price of petroleum, nonferrous metals and steel was a main influencing factor of the price of production goods since 2006. The price situation of each production goods is as following.

(1) The price of steel increased first and then fell. The total level dropped to some extent. The average price of four main steel materials, wire stock, deformed steel bar, medium plate and light cold-rolled sheet, was 3737 RMB per ton, which decreased by 12.1% compared with that of the same period of last year. The price of them was 3225 RMB, 3192 RMB, 3632 RMB and 4900 RMB per ton respectively, decreasing by 5.6%, 8.1%, 11.8% and 18.4% compared with that of the same period of last year.

From the developing tendency, in January, the price of domestic steel dropped to the bottom value. From February to June, the price rose back continuously. By June, the average price of the above four steel materials was 4200 RMB per ton, increasing by 888 RMB compared with that in January. The growing breadth was 26.8%. Among them, the price of wire stock, deformed steel bar, medium plate and light cold-rolled sheet increased by 552 RMB, 350 RMB, 1461 RMB and 1188 RMB respectively compared with that in January. The growing breadth was 11.4%, 18.2%, 49.9% and 28.1% respectively. In July and August, the price of steel dropped greatly. In August, the average price of such four kinds was 3702 RMB per ton, decreasing by 498 RMB compared with that of June. The dropping breadth was 11.9%. Among them, the price of wire stock, deformed steel bar, medium plate and light cold-rolled sheet dropped by 356 RMB, 274 RMB, 766 RMB and 598 RMB relatively compared with that of June. The dropping breadth was 9.9%, 7.6%, 17.5% and 11% respectively. After September, the total price of steel was stable with slightly decreasing.

(2) The price of nonferrous metals rose with vibration. Affected by several factors such as the tight supply of copper and aluminum in the international market and speculation, the price of electrolytic copper and electrolytic aluminum in London Metal Exchange (LME) increased greatly in 2006. The average price in the whole year was 6733 USD and 2574 USD per ton respectively, increasing by 83.1% and 35.5% respectively compared with that of last year. Promoted by the price of copper in the international market, the price of electrolytic copper and electrolytic aluminum in the domestic market also increased greatly. The average price of electrolytic copper and electrolytic aluminum in Huatong nonferrous metal spot market was 62239 RMB and 20392 RMB per ton, increasing by 74.6% and 20.8% compared with that of last year.

From the tendency, the price of domestic electrolytic copper vibrated in a high position continuously after jumping high and falling back. From January to May, the price of electrolytic copper rose month by month. On May 12, the price of domestic electrolytic copper created a new record of 82200 RMB per ton. From the middle of May, the price dropped by a great breadth. In August and September, it stopped decreasing and grew back. After that, the price of domestic copper was almost 8000 RMB per ton. The price of electrolytic aluminum had “three ups and three downs”. In the first stage, the price increased from 19000 RMB per ton in the beginning of this year to 21680 RMB per ton on February 10 and then fell back quickly. In the second stage, it increased from 18700 RMB per ton at the beginning of March to the record-breaking 23760 RMB on May 12. Then it fell back greatly again. In the third stage, the price increased from 18400 RMB per ton in the end of July to 23050 RMB on September 7th. After the middle of September, the price almost vibrated around 21000 RMB per ton.

(3) The vibration of petroleum price was aggravated. The total level rose greatly. In the whole year, the WTI and Brent crude oil futures price was 66.2 USD and 66.1 USD per barrel respectively, increasing by 9.7 USD and 11 USD compared with that of last year. The growing breadth was 17.1% and 20% respectively.

From the tendency, the price of petroleum in the international market rose first and then fell. In the beginning of the year, affected by several factors such as the tight supply of global petroleum, unstable geopolitic status and fund speculation, the price of petroleum in the international market kept rising with great vibration. The price always created new records. On July 14, WTI crude oil futures price went up to 77.03 USD per barrel, creating the highest level in the history and increasing by 26.2% compared with that in the end of 2005. On August 7, Brent crude oil futures price went up to 78.3 USD per barrel. After that, because the tense geopolitic situation was alleviated to some extent and the American petroleum storage level was relatively high, the price of petroleum in the international market appeared great falling. On November 17, WTI crude oil futures price fell to 55.81 USD per barrel, which was the lowest point during the period since the middle June of 2005. Compared with the culmination price on July 14, the price dropped by 21.2 USD per barrel and the decreasing breadth was 27.5%. Since the last ten-day of November, the price almost vibrated around 60 USD per barrel.

When the price of petroleum in the international market keeps a high level, on March 26, 2006, the comprehensive supporting adjustment scheme for petroleum price was issued. And the price of domestic oil product was raised twice respectively in March and May. The price of gasoline, diesel oil and jet fuel increased accumulatively by 800 RMB, 700 RMB and 800 RMB per ton respectively. The adjusting breadth was 18.2%, 18.1% and 16.9% respectively.

(4) The price of cement was first low and then high. The total level reduced slightly. In 2006, the annual average price of level 42.5 and 32.5 ordinary silicate cement was 340.4 RMB and 306 RMB per ton respectively, reducing by 3.6% and 5% respectively compared with that of same period of last year.

From the tendency, in the first three quarters, the domestic cement price kept on a low level. From January to September, the average price of level 42.5 and 32.5 ordinary silicate cement was 339.3 RMB and 305.1 RMB per ton, reducing by 4.4% and 5.6% respectively compared with that of same period of last year. Since October, the cement price in South China and Central China rose obviously. The average increasing breadth of producer price was 15-20 RMB per ton, which promoted the increase of the total domestic cement price level. According to the monitoring and supervising to 36 large and medium cities in the nationwide carried out by China Price Information Center, compared with the price in September, that of level 42.5 and 32.5 ordinary silicate cement in November increased by 10.3 RMB and 9.2 RMB respectively with the same increasing breadth of 3.1%. Since December, the cement price became stable.

The main reasons that the price of production goods kept on a high level in 2006 are as following. Firstly, the domestic demand was still strong. In the first half year, the investment in domestic fixed assets kept fast increasing. The accumulative investment in urban fixed assets of the whole society was 3,636,800 million RMB, increasing by 31.3% compared with that of the same period of last year. The growth rate increased by 4.2 percentage points compared with that of the same period of last year. Although the growth rate of investment in fixed assets in the second half year went back month by month because of the government macroscopic readjustment and control policy, from January to November, the investment in urban fixed assets of the whole society was still up to 7,931,200 million RMB, increasing by 26.6% compared with that of the same period of last year, which is on the relatively high level. Especially the projects such as construction of new village, South-to-North Water Transfers, national key airports, and construction of expressways and railways have great promotion to the market demand on cement and building steel. At the same time, the production of downstream products such as machinery, automobiles, electronic products and main household electric appliances still kept a growth rate of more than 20%. The exporting status was optimistic, which also supported the price of steel and nonferrous metals. Secondly, the price of relevant products in the international market rose. In 2006, the total situation of international economy was excellent, which promoted the demand on the production goods in the international market. Meanwhile, U.S. dollar devaluing and large amount of international free capitals entering the market of crude oil, gold and copper for speculation and making profits made the price of production goods keep rising and running on a high level. It promoted the export of domestic relevant products and increased their price. Thirdly, the effect of industrial structure adjustment appeared. The over-speed increase in production capacity of steel, electrolytic aluminum and cement was contained. The situation that the supply exceeds the demand was alleviated. Since 2006, the government continuously enhanced the strength of regulation and control in some overheated invested industries. From January to November of 2006, the investment in ferrous metal ore selecting, smelting and roll processing was 226,400 million RMB, increasing by 4.0% compared with that of the same period of last year. The increasing breadth of investment in cement and electrolytic aluminum kept falling back. Meanwhile, the government enhanced the strength in eliminating the poor production capacity of these industries by strictly implementing technical, environment protection and safety standards and carrying out measures such as different price for electricity. From January to November, the domestic output of gross steel, cement, electrolytic copper and electrolytic aluminum increased by 8.4%, 19.7%, 17.3% and 18.8% respectively compared with that of the same period of last year, which was lower than the growth rate of investment in fixed assets and production in main downstream industries of the same period. It alleviated the situation of the supply exceeding the demand in the market of steel, electrolytic aluminum and cement to some extent and further stabilized the price. Fourthly, the self-discipline consciousness of enterprises and industries was enhanced to some extent. Since 2006, the industries such as steel, cement and nonferrous metals had enhanced industrial coordination and information interchange, which prevented the market from great vibration to a certain extent.

Although the price of production goods run on a high level in 2006, from the second half year, the tendency of over-speed investment in domestic fixed assets and monetary credit was obviously limited. The increasing breadth of investment and monetary credit fell back month by month. The price of the main production goods such as steel and nonferrous metals was stable with slightly decreasing. It is indicated that the government relevant regulation and control have obtained preliminary achievements.

2. Tendency prediction of the price of main production goods in 2007

Considering the following factors, it is estimated that the price of production goods will still keep rising in 2007. Firstly, the growth rate of the global economy in 2007 may lower down. But it will not decrease obviously compared with that in 2006. Both the domestic economy and global one will keep relatively high growth rate. Affected by inertia of investment and oversized scale of under construction, the domestic investment in fixed assets will keep a relatively high growth rate, which also keeps the demand of production goods strong. Secondly, the supply and demand of upstream energy resources and ore products is totally in tight balance. The price will not fall back obviously. It will support the price of production goods to run on high level to some extent. Thirdly, the reform of price and tax for domestic resource products will also bring certain cost promoting pressure on production goods.

Nevertheless, on the other hand, the factors such as exchange rate of RMB going strong, the exporting situation being not optimistic and supply pressure of domestic market continuing increasing will restrict the rising of production goods in 2007 to some extent.

According to overall analysis, the increasing breadth of price of production goods in circulation will be 2-3% in 2007 compared with that of the same period of last year, which is slightly lower than that in 2006. The price tendency of main products is as following.

(1) The price of steel will be stable with slightly increasing. It is estimated by International Iron and Steel Institute that the supply and demand of steel in the international market in 2007 will be balanced. The global apparent consumption of steel will be 1,179 million tons, increasing by 5.2% compared with that of 2006. Due to the price of iron ore in the international market going up slightly and the cost of steel production remaining high, the price of steel in the international market in 2007 will keep running on a high level. In the domestic market, it is estimated by relevant departments that the growing breadth of domestic steel output will continue decreasing with the adjustment of national steel industrial structure and implementation of energy-saving and consumption-reducing policy. It is predicted that the output of domestic gross steel in 2007 will be 462 million tons, increasing by 10% compared with that of the same period of last year. The growing breadth will decrease by 8 percentage points compared with that of last year. The demand in the domestic steel market in 2007 will keep stable increasing. It is estimated that the increasing breadth of the same period of last year will be slightly lower than 10%. All in all, the supply and demand in the domestic steel market in 2007 will be basically balanced. Considering the steel production cost rising to some extent, the strength of industrial structure adjustment increasing and self-discipline consciousness of operators being strengthened continuously, it is predicted that the price of domestic steel in 2007 will be stable with slightly increasing. Among them, the price of building steel will be basically stable and that of boards will rise to some extent. The annual average price of four main steel materials will be about 3800 RMB per ton, which is slightly higher than that of 2006, 3737 RMB per ton.

(2) The price of copper and aluminum will fall back to some extent. In recent two years, the price of copper rose greatly, stimulating the construction of copper production. In 2007, the global copper output will remain increasing greatly. For the international electrolytic copper market, the situation will turn to balanced supply-and-demand from tight supply-and-demand. Meanwhile, the labor-capital negotiation of global main copper mines, which once makes the market worried, have almost been finished. The situation of tight supply of global copper preparation concentrates will be alleviated, which is helpful for the copper price in the international market falling back. The Chinese electrolytic copper market has close relation with the international market. The falling back of global copper price will make the domestic copper price decrease. In 2007, the domestic housing, automobile and electricity industry will still develop stably and fast. The demand for electrolytic copper will still great. However, the sufficient supply of domestic copper preparation concentrate will restrict the output of electrolytic copper from great increase. Therefore, the falling space for domestic electrolytic copper price is limited. It is estimated that the annual average price will be about 60000 RMB per ton, which is slightly lower than that of last year.

Affected by the supply exceeding the demand of the market and the price of upstream raw material alumina decreasing, it is estimated that in 2007 the price of electrolytic aluminum will totally be in falling tendency. According to the analysis by China Nonferrous Metal Institute, the consumption of domestic electrolytic aluminum in 2007 will keep increasing. But the growing breadth of consumption will be smaller than that of output. It is predicted that the supply will be 1 million tons over the demand. In addition, the government will make 15% temporary tax on export of electrolytic aluminum. The supply pressure of domestic market will increase further, which will make the price of electrolytic aluminum reduce. It is estimated that the annual average price will be about 18000 RMB per ton, decreasing by 11% compared with that of last year.

(3) The price of petroleum will vibrate on a high level. According to present prediction from all the aspects, the supply and demand of global petroleum in 2007 will still in fragile balance. The OPEC policy, climate, geopolitics and fund tendency may lead the price tendency in a short time. There are more and more variables that may affect global petroleum market. The factors making the price up and down coexist. Firstly, the growing rate of demand on global petroleum is decelerating. Secondly, non OPEC petroleum supply will appear great increase, which is favorable for ameliorating the relation of supply and demand. Thirdly, the high storage level of global petroleum is helpful to restrict the rising of petroleum price. Fourthly, strength of reducing production capacity by OPEC is a main factor to support the price running on a high level.

Based on the analysis above, if there is no sudden incident, the petroleum price in the international market will vibrate on a high level and the total level may slightly fall back. It is estimated that the average Brent crude oil futures price will be 60-65 USD per barrel in 2007, which is slightly lower than that in 2006.

In addition, it is estimated that the cement price will still on a relatively low level and rise to some extent. The price level of the whole year will be higher than that of last year. Affected by factors such as safety and cost of environment treatment rising, the price of production goods of excavating type such as coals will increase in small breadth.